India's capital goods sector expects mixed Q1 FY27 results as rising raw material costs threaten profitability. While revenue is supported by strong order execution, high commodity prices like copper and zinc are squeezing margins by an estimated 58 basis points.
The Indian capital goods sector enters the first quarter of fiscal year 2027 with a complex outlook, balancing healthy revenue growth from existing projects against the challenge of tightening profit margins. According to recent analyst projections from Nomura Securities, while order books remain substantial, the profitability of major engineering and industrial firms is facing direct pressure from elevated costs of essential commodities including copper, zinc, aluminium, and pig iron.
Sector Profitability and Margin Trends
Financial performance across the sector is showing a distinct contrast between top-line expansion and operational efficiency. The industry is projected to see a 10.7% year-on-year revenue increase, largely driven by the steady execution of robust order books accumulated over previous periods. However, this growth is being partially offset by a projected contraction in EBITDA margins of 58 basis points, which are expected to settle at 12.6%. This margin compression highlights the difficulty companies face in passing on higher input costs to customers in a competitive environment.
Order Inflow Performance
Aggregate order inflows for the sector are forecast to show a modest 5% year-on-year growth to approximately ₹1.4 trillion. Power transmission, hydrocarbons, and transportation infrastructure remain the primary drivers of this activity. Yet, the pace of new order wins is being tempered by several factors, including the absence of widespread private capital spending and lingering geopolitical uncertainties that have particularly impacted activity in the Middle East.
Specific companies within the sector are navigating different realities based on their project cycles and previous order wins. Larsen & Toubro is anticipated to see a 3% year-on-year decline in core order inflows, affected by a high comparative base and a slowdown in mega-project awards. Bharat Electronics is projected to face a more significant 54% drop in order inflows, with key defense-related projects like QRSAM now expected to materialize in the September quarter. Conversely, Hindustan Aeronautics is forecast to record a 9% rise in order inflows, reflecting sustained demand in the aerospace segment.
Strategic Expansion and Future Outlook
Despite the immediate margin pressures, several companies continue to invest in long-term capacity. For instance, CG Power and Industrial Solutions has started commercial production at its new semiconductor facility in Sanand, marking a move into high-value electronics manufacturing. Simultaneously, companies like Apar Industries are pursuing capital-raising plans of up to ₹25 billion to fund expansion initiatives. Investors will likely monitor how these capital-heavy projects impact cash flow and debt levels in the coming quarters. The primary monitorables for the sector moving forward will be the stabilization of raw material prices, the timing of delayed large-scale government orders, and the ability of firms to maintain profitability through efficient project execution.